By Kenneth R. Harney
Saturday, March 29, 2008

Your tax rebate check won't arrive until May, but the economic stimulus plan's new super-size loans for buyers in high-cost housing areas have hit the market.

Depending on the location of the property you want to buy or refinance, you can now get a Federal Housing Administration-insured mortgage for as much as $729,750 with a 3 percent down payment. You can also apply for loans designated for funding by Fannie Mae and Freddie Mac up to that amount (or 125 percent of your area's median home price) with down payments of at least 10 percent.

The new jumbo loans are intended to break a logjam in the capital markets. Starting in August, global investors began bailing out of U.S. mortgage bonds as fears about losses and write-downs spread from the subprime sector into other home loan categories. Jumbo loans traditionally were viewed as having slightly higher risk than the "conforming" loans of up to $417,000 that were bought and securitized by Fannie Mae and Freddie Mac.

As the capital markets seized up, money for jumbos practically disappeared. Interest rates soared to 10 percent in some cases -- causing problems for buyers and refinancers in California, New England, the Mid-Atlantic and parts of Florida where high home prices require giant mortgages.

To free the flow of capital in those areas -- and to help financially stressed owners find affordable fixed-rate refinancing -- the stimulus legislation authorized new jumbo programs through Fannie Mae, Freddie Mac and the Federal Housing Administration through Dec. 31.

Without congressional action, the limits will drop back to $417,000 for Fannie Mae and Freddie Mac, and to $362,790 for the FHA, beginning Jan. 1. In the meantime, there should be plenty of jumbo-mortgage money available for anyone who can afford it.

But don't expect eligibility standards to be as generous as in the under-$417,000 segment of the market. For example, in the guidelines for what Fannie Mae calls its new "jumbo conforming" program, the company will, beginning April 1, buy fixed-rate mortgages up to $729,750, but only with the following conditions:

¿ Minimum down payment of 10 percent.

¿ Minimum FICO credit score of 700 for any loan with less than a 20 percent down payment. "Nontraditional" credit histories as alternatives to FICOs are not permitted, unlike in other programs.

¿ Minimum 40 percent down payment and 660 FICO for second homes and investor properties.

¿ No balloon or negative-amortization payment terms allowed.

¿ Household debt-to-income ratios cannot exceed 45 percent.

Freddie Mac announced similar standards but wants minimum 700 FICO scores on any loan with less than a 25 percent down payment.

Don't expect interest rates on the new super-size conforming jumbos to be anywhere near competitive with smaller mortgages. Besides higher base rates, there are add-on charges in "declining" markets that can push final note rates beyond 7.5 percent. Many areas tagged as declining are in the former housing-boom markets in California and the Eastern Seaboard, where jumbo mortgages are most common and most needed.

For example, in Naples, Fla., the first batch of conforming jumbos available in late March came with base rates of 6.875 percent, according to mortgage brokers, but with the declining market and other price adjustments, the final rate to some borrowers came to 7.875 percent.

William Dukes, senior loan officer for Summit Home Mortgage in Naples, said a local borrower with a high credit score, a 20 percent down payment, and solid income and assets could get a $400,000 first mortgage at a fixed 5.625 percent. But the same applicant seeking a new $500,000 Fannie Mae or Freddie Mac conforming jumbo loan would pay well over 7 percent after add-ons.

Dukes said the rates on the new jumbos are "surprisingly high" compared with loans under $417,000. Traditionally, the spread between conventional loan rates and jumbos was about half of a percentage point.

"I don't know what [Congress] is really accomplishing here," he said.

Paul Skeens, principal broker at Carteret Mortgage in Waldorf, disagreed, arguing that some pricing on the new jumbos is attractive, especially for FHA loans with down-payment requirements far below the 10 percent mandated by Fannie Mae and Freddie Mac.

"I don't think the stimulus was intended to buy the market with low rates," he said. "It was intended to stabilize the market" by ensuring adequate funding for housing in high-cost areas.

"You can buy a $700,000 house with 3 percent down with a [30-year-fixed] rate of 6.5 percent right now" in the Washington area, Skeens said, "and that is really an amazing deal."

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.